Please enable JavaScript.
Coggle requires JavaScript to display documents.
Market Equilibrium (The price mechanisms (Allocation of resources,…
Market Equilibrium
-
-
-
A Shift occurs whether any of the Non-price determinants of D or S change = excess D or S = a new market equilibrium
-
-
It occurs in:
A Free, competitive market - where there is no interference with the forces of P and Q
If there is a shortage, the excess demand will ensure P increases until Pe
If there is a Surplus, the excess Supply will ensure P decreases until Pe
The price mechanisms
-
-
Signaling function: When there is a shortage due to a movement of D1 to D2, P will automatically begin to increase acting as a signal to firms that there is a shortage.
-
-
-
-
Surplus
Consumer Surplus
The benefit received by consumers who buy a good at a lower price than the price they are willing to pay = the are UNDER the D curve until the Pe.
Producer Surplus
The benefit received by producers who sell a good at a higher price than the price they are willing to receive = the area ABOVE the supply curve up to the Pe.
-
.
-
-
Allocative Efficiency
The best allocation of resources from society's POV at competitive equilibrium = where social surplus is maximised (Marginal Benefit = Marginal Cost)